The Competition and Markets Authority (CMA) conducted a number of cartel investigations across a broad range of sectors over the last year, with extremely serious consequences for those found to be involved.
In the construction sector, the CMA fined two roofing material companies a total of £9.5 million in November 2020 for entering into anti-competitive practices and obtained three director disqualifications. The two firms admitted that they entered into anti-competitive arrangements including market sharing, price collusion and exchanging commercially sensitive information. In December 2020, the CMA fined two suppliers of groundworks products over £15 million for engaging in price collusion. A third supplier involved in the infringement was granted immunity from fines under CMA’s leniency programme. The Competition Appeal Tribunal also upheld the CMA’s decision to impose a £25m fine on FP McCann Ltd for participating in the pre-cast concrete drainage product cartel. The CMA had fined FP McCann and two other suppliers a total of £36 million for engaging in price fixing, market sharing and the exchange of competitively sensitive information.
The CMA also investigated conduct in the pharmaceutical sector. The CMA issued fines totalling almost £2.3 million on three pharmaceutical companies for entering into pay for delay arrangements in relation to the supply of fludrocortisone acetate tablets in the UK. All three companies admitted to the infringement and one of the companies agreed to pay £8 million directly to the NHS by way of compensation. In another case, the CMA issued two separate decisions in March 2020 for information exchange and market sharing arrangements in relation to the supply of nortriptyline tablets. The companies involved in market sharing admitted to the infringement and agreed to pay fines of £75,573 and £1,882,238 respectively and to make a £1 million payment to the NHS by way of compensation. Two of the three companies involved in the information exchange also admitted to the infringement and agreed to pay fines of £75,573 and £174,912 respectively. The third company, which was fined £1.2 million, appealed the CMA’s decision and fine in the Competition Appeal Tribunal (CAT); however on 25 February 2021, the CAT upheld the CMA’s decision and fine.
In the musical instruments sector, the CMA cracked down on retail price maintenance (RPM) practices, and issued fines totalling almost £14 million to companies producing different musical instruments ranging from guitars, to digital pianos, electronic drums, and synthesizers. In July 2020, the CMA also took enforcement action against a retailer in a RPM case for the first time.
The CMA secured several director disqualifications in the last year including:
- Three director disqualification undertakings in the roofing materials case.
- Two director disqualification undertakings in the nortriptyline case. It is also currently seeking a director disqualification order in the High Court for a third director in this case (another director disqualification undertaking was secured in 2019).
- One director disqualification undertaking in the fludrocortisone case.
- Two director disqualification undertakings in the Berkshire residential estate agent cartel.
- One director disqualification order in the Burnham-on-Sea residential estate agent cartel. This is the fourth director disqualification in this case.
What are the trends for cartel investigations in the current year? How have these been affected by the COVID-19 pandemic?
In the last year, the CMA focused on the construction, pharmaceutical and musical instruments sectors, and given that there are still a number of ongoing investigations, it is likely that we will see further activity from the CMA in these sectors in the current year. In particular, the CMA’s draft 2021/22 annual plan states that it will continue to work on cases in the pharmaceutical sector to ensure that the NHS does not pay significantly more than it should. It is also likely that the CMA will be paying close attention to conduct in digital and online markets, particularly through its new Digital Markets Unit. For example, it is currently investigating the extent to which algorithms can, inter alia, be used to implement tacit price collusion.
The CMA has not recently brought any criminal cartel investigations, and has instead ramped up its director disqualification programme. It may take the same approach in the current year, favouring director disqualifications over criminal investigations, as a deterrent against cartel conduct by individuals. The CMA has secured 23 director disqualifications to date and majority of these have been by way of undertakings, rather than court orders. However, one of the directors who gave a director disqualification undertaking in the nortriptyline case was granted permission by the High Court in December 2020 to continue to act as a director, subject to strict restrictions, given the particular needs of the company concerned. This is the second time the High Court has granted such permission and this may be an avenue disqualified directors may increasingly wish to pursue in the current year.
The unprecedented COVID-19 pandemic has impacted the way in which the CMA operates. A number of cartel investigations were temporarily paused last year as the CMA had to re-allocate resources as a result of the pandemic and the CMA created a COVID-19 taskforce to identify harmful sales and pricing practices during the pandemic. In addition, as part of a series of measures introduced last spring by the UK government to help businesses during the pandemic, it temporarily relaxed the application of the Chapter I Prohibition of the Competition Act 1998 to businesses operating in the following sectors: public health, groceries, dairy and Solent ferry crossings. The relaxation is still in place for businesses operating in public health and Solent ferry crossings.
What were the major legislative / regulatory changes in the last year and what can we expect in the next 12 months?
In February 2021, the results of an independent review on UK competition policy by John Penrose MP were published (“the Penrose Report”). The Penrose Report sets out a number of recommendations for strengthening competition and consumer protection laws in the context of the recovery from the COVID-19 pandemic. Amongst the recommendations made, the following may have an impact on cartel investigations:
- Penalties for non-compliance with investigations to be strengthened and brought in line with international norms – currently the CMA can impose fines for failure to supply information during investigations of £30,000 and/or £15,000 per day. By comparison, other countries can impose turnover-based fines, which the Report considers to be more effective.
- The introduction of County Competition Courts – businesses can bring claims (e.g. stand-alone damages claims) against alleged competition law offenders (such as cartelists) to the Competition Appeal Tribunal (or the High Court). The Penrose Report considers that this process can be slow and expensive for many small or local businesses. As such, it recommends the creation of new, cheap, efficient, fast-track Competition Courts for local and regional cases with very tight case management, a low cost cap for losing businesses and a 1 or 2-day maximum hearing length.
- A new statutory duty for local authority trading standards (LATS) teams – the Penrose Report recommends the creation of a new statutory duty for minimum standards in LATS teams, which include powers to launch antitrust and consumer investigations, and provide ring-fenced resources so they can deliver them well.
In 2019, the former Chair of the CMA, Lord Tyrie, had also outlined a separate set of recommended legislative and institutional reforms. The proposals included potential civil fines for individuals involved in serious competition law infringements and a requirement for companies to appoint a director with the responsibility for assessing competition law compliance risks. Lord Tyrie also noted that the criminal cartel offence had been difficult to apply and invoked relatively rarely, as the CMA does not maintain the scale of specialist expertise normally possessed by agencies with powers of criminal prosecution. Lord Tyrie suggested that the primary responsibility for cartel prosecutions may sit more naturally with another agency such as the Serious Fraud Office.
The recommendations above could result in stronger cartel enforcement in the UK as they help to increase deterrence and improve the detection and investigation of cartels. The Government is currently considering these recommendations and will respond in due course.
What can we learn from international developments which may have an impact on cartel investigations in the UK?
The most recent international development relates to the COVID-19 pandemic. In addition to the temporary relaxation of the competition law in relation to businesses operating in certain sectors in the UK, there have also been a few changes at EU level. The European Commission issued a ‘Temporary Framework Communication’ that sets out the criteria that it will use to assess cooperation projects that look at combating essential goods and service shortages during the pandemic. Most importantly, companies may be able to receive ‘ad hoc comfort letters’ from the Commission that their cooperation does not constitute a breach of Article 101 of the Treaty on the Functioning of the EU.
Brexit will also inevitably impact cartel investigations in the UK. Given that the Brexit transition period has now ended, cartel investigations concerning conduct in the UK which would previously have been reserved for the European Commission now fall within the CMA’s sole competency (unless the Commission had initiated formal proceedings before the end of the transition period).
Given that the European Commission will still be able to enforce EU competition law against UK companies whose conduct has an effect on trade within the European Union, it is likely that EU competition law will continue to play a role and influence UK competition law during this post-Brexit era albeit to a potentially decreasing extent.
If you have any questions or require any further information in relation to the issues covered in this article (or any other competition law matters), do not hesitate to get in touch with Chris Worrall or your usual Burges Salmon contact.
The criminal and regulatory environment imposed on UK corporates doing business domestically and internationally has changed significantly in recent years. In an era of increasing scrutiny of ESG factors, the cost of non-compliance has never been higher. Our business crime and regulatory investigations team work with corporates to ensure they do not unknowingly commit, or become the victim of, fraud, or financial crime, regulatory breach or non-compliance. We also help our clients unscramble the mess if they have the misfortune to become embroiled in a criminal or regulatory investigation in any aspect of their day-to-day operations.